[¶81-240] Factory

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A factory is defined to include a mill, workshop (other than a workshop used for the repair or servicing of
goods if the repair or servicing is carried out in conjunction with or incidental to the business of selling those
goods) or other building for the housing of machinery or plant of any description for the manufacture of
any product or the subjection of goods or materials to any process or the generating of power used for the
purpose of that manufacture or process. A factory also includes a building used for the storage of any raw
material, fuel or stores necessary for the manufacture or the processing of products or goods or materials, or
for the storage of that product or those goods or materials when processed prior to their sale.
The terms “manufacture” and “process” are not defined in the Income Tax Act 1967; thus, they are given
their ordinary dictionary meaning.

Manufacture

The “manufacture” of goods would normally involve the creation of something; the shaping, stamping or
forming of an object out of something. The essence of manufacture is the making of a thing which is different
from that out of which it is made.

Case law

The manufacturing process need not necessarily produce the end product, provided it is an essential stage in the final production
of that end product. There need not be a change in the actual substance of the raw material before the process of dealing with it is
regarded as a manufacturing process, provided skill has been applied in some way to that raw material, and its actual character, as
opposed to its mere substance, is changed (COT v Processing Enterprise (Pvt) Ltd (1975) 37 SATC 109).
Hence, the retreading of tyres is not manufacture but, rather, the repair and remodelling of an old tyre: no new product or article has
been produced (FC of T v Jax Tyres Pty Ltd 85 ATC 4001).

Processing

“Processing” refers to a technique of preparation, handling or other activity designed to effect a physical
or chemical change in an article or substance, other than natural growth. “Process” suggests a substantial
measure of uniform treatment (Vibroplant Ltd v Holland (1982) STC 164). It is a very broad term and
provides an unrestricted application. The following cases illustrate what constitutes “processing” and,
accordingly, whether a building in which the activity is carried out is an industrial building.

Case law

1. These have been held to constitute “processing”:

  – The stripping, cleaning and inspection of sheets of rubber; the scrapping, weighing, moulding and compressing of sheets into
bales; and the coating of the bales with a rubber solution for export (M Ltd (1951) SB IV).
  – Business of motor dealers and repairers. A motor repair workshop is an industrial building (L Ltd (1952) SB VI).
  – Screening and packaging of coal (Kilmarnock Equitable Co-operative Society v IR Commrs (1966) 42 TC 675).
2. These have been held not to constitute “processing”:

  – The disposal of human bodies by cremation (Bourne v Norwich Crematorium Ltd (1967) 44 TC 164).
  – Breaking down bulk coins and notes into individual wage packets where they are dealt with as money or currency rather than
as goods (Buckingham v Securities Properties Ltd (1980) STC 166).
  – Trade of plant-hire operations which involve cleaning, servicing and repairing hire articles in buildings constructed for that
purpose (Vibroplant Ltd v Holland (1982) STC 164).
3. Where industrial operations can be identified, notwithstanding how small they are, as a separate activity, the building used for
such an activity will qualify as an industrial building (Kilmarnock Equitable Co-operative Society v IR Commrs (1966) 42 TC 675).

Further reading

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 [¶81-200ff] Criteria for eligibility for industrial building allowance
[¶88-920] Industrial building allowance
[¶200-560] Public Ruling No 4/2011 — Income from letting of real property
[¶240-305] Guidelines on Tax Incentives for the Services Sector

Law: Sch 3 para 37A, 37B, 37C, 37D, 37E, 37F, 37G, 37H, 63, 64, 67B, Sch 7B.

Cases: COT v Processing Enterprise (Pvt) Ltd (1975) 37 SATC 109

FC of T v Jax Tyres Pty Ltd 85 ATC 4001
M Ltd (1951) SB IV
L Ltd (1952) SB VI
Kilmarnock Equitable Co-operative Society v IR Commrs (1966) 42 TC 675
Bourne v Norwich Crematorium Ltd (1967) 44 TC 164
Buckingham v Securities Properties Ltd (1980) STC 166
Vibroplant Ltd v Holland (1982) STC 164.

Last reviewed: 15 November 2017

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